Guest Aldo Posted August 12, 2007 Share Posted August 12, 2007 Has anyone considered a foreign currency mortgage or looked into it in detail? Foreign Currency Mortgages for Australian expatriates and migrants Link to comment Share on other sites More sharing options...
Guest joksand Posted August 12, 2007 Share Posted August 12, 2007 Hi Looks very interesting! I just quickly read the link (it's too late to read it thoroughly my brain's almost gone to sleep for tonight!) and it seems that you have to be an offshore investor to qualify. I could be wrong - hopefully someone has some knowledge on this and will advise. I'll be keeping my eye on this thread! Jo Link to comment Share on other sites More sharing options...
Guest Liam Posted August 13, 2007 Share Posted August 13, 2007 HOW DID AUSTRALIAN'S LOSE USING THESE LOANS IN THE 1980's ? In the 1980's, in Australia, when interest rates were 18% for home loans and up to 25% for business loans and overdrafts, literally thousands of farmers, small businesses and professionals such as dentists, doctors and lawyers were enticed into borrowing in Swiss francs because of the lower interest rates ( 6% or so ). They were to save thousands of dollars in interest on their loans and overdrafts, even hundreds of thousands of dollars. They were not aware of the risks associated with these foreign currency loans. If the Australian dollar "crashed" against other currencies, especially the Swiss franc, they could lose everything that they owned. Guess what ,the Australian dollar "crashed" : they lost everything. These people were bankrupted , businesses were ruined, families were destroyed, tragically, suicides occurred. EXAMPLE: Interest rates in Australia = 20% Interest rates in Switzerland = 6% Saving on interest = 14% Amount borrowed = $1,000,000 Term of loan = 5 years One Australian dollar = One Swiss franc Australian bank arranges $1,000,000 loan for 5 years and converts it into Swiss francs equivalent amount. Australian bank takes a mortgage over property, in Australia, valued at $1,300,000 (Australian dollars). Savings in interest to the borrower = $140,000 per year ( i.e. 20% - 6% = 14% X $1,000,000 ). After only 12 months the Australian dollar falls in value by 50%. Now you need 2 Australian dollars to equal 1 Swiss franc. You need $2,000,000 Australian dollars to repay the 1,000,000 Swiss franc loan. The bank realizes that they do not have enough security and calls for more security from the borrower, such as : ‘We need $2,600,000 in security … please provide other security worth $1,300,000 to go with the $1,300,000 of security that we already have or we will demand that you pay back the loan’. Most of the borrowers could not provide the additional security … the banks demanded that the loans be repaid in full. The borrowers now owed $2,000,000 Australian dollars rather than the original $1,000,000 they borrowed. They had saved $140,000 in interest but they had lost $1,000,000 on the loan, i.e. a net loss of $860,000. The banks took their security from the borrowers and sold it under a mortgagee-in-possession sale. The borrowers had lost their assets which were sold by the banks and they still had debts they were bankrupted. Banks have improved their lending practices and now ensure that hedging is in place to manage the currency risk but the downside of this is that it adds to the cost of the loan and in many cases negates the savings. CAVEAT EMPTOR (Let the buyer beware!) Liam Link to comment Share on other sites More sharing options...
Guest Aldo Posted August 14, 2007 Share Posted August 14, 2007 i might give that a swerve then.:err: Link to comment Share on other sites More sharing options...
Guest joksand Posted August 14, 2007 Share Posted August 14, 2007 me too - there's always a catch isn't there! jo Link to comment Share on other sites More sharing options...
Recommended Posts
Archived
This topic is now archived and is closed to further replies.